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South Africa could escape a further slide to junk status on Friday in the same way the nation\u2019s leader, Jacob Zuma, defeated a parliamentary rebellion and clung onto power – comfortably but not without some sweating.<\/p>\n
Moody\u2019s Investors Service is scheduled to release a ratings review two months after it cut the local- and foreign-currency assessments to one level above junk, citing risks to growth and fiscal strength due to the political outlook.<\/p>\n
That was after it put South Africa on review for a downgrade following a cabinet reshuffle in which Zuma fired Pravin Gordhan as finance minister, prompting S&P Global Ratings and Fitch Ratings Ltd. to cut the nation to sub-investment grade.<\/p>\n
Policy uncertainty and political turmoil increased in the last two months as the nation\u2019s anti-graft ombudsman instructed changes to the central bank\u2019s mandate, the mines minister published new regulations and Zuma\u2019s defeat of a no-confidence motion in parliament send the rand weaker. South Africa entered a recession in the first quarter.<\/p>\n
\u201cThe fact that there is no political change or upheaval or unscheduled change of a president, all those are positive,\u201d George Herman, the chief investment officer at Citadel Investment Services in Cape Town, said by phone.<\/p>\n
\u201cI don\u2019t think ratings agencies are in the business of taking a qualitative view on the standard of the president. The survival of the president from a ratings point of view is credit-positive.\u201d
\nAgainst Zuma<\/p>\n
All but one of 11 economists in a Bloomberg survey said Moody\u2019s will keep the foreign-currency rating unchanged. Only two of the 11 predicted the local-currency assessment will be cut to junk.<\/p>\n
While the no-confidence motion in Zuma was defeated by 198 voted to 177 on Aug. 8, more than two dozen members of his ruling African National Congress opposed him.<\/p>\n
The ANC will elect new leaders in December when Zuma is due to step down. The party\u2019s new head will probably succeed him as president of the country in 2019.<\/p>\n
Moody\u2019s is the only major credit-rating company to assess both South Africa\u2019s foreign-currency and rand-denominated debt at investment grade. The bulk of investments in global index-tracking funds remains safe because about 90 percent of the country\u2019s debt portfolio is rand-denominated.<\/p>\n
A downgrade of the local-currency rating could trigger a large outflow of funds as the debt will then be excluded from certain indexes.<\/p>\n
Moody\u2019s and S&P\u2019s next reviews are scheduled for Nov. 24.<\/p>\n
In November, Moody\u2019s issued a research report instead of a ratings action on the scheduled date and the company could again offer no update on Friday, according to Peter Attard Montalto, chief emerging-markets economist at Nomura International in London.<\/p>\n
The company may wait for more information from the mid-term budget in October and developments around state-owned companies, he said in written comments.<\/p>\n